The E.W. Scripps Company (NYSE: SSP) today reported operating results for the fourth quarter of 2014. Unless otherwise indicated, all operating results comparisons are to the fourth quarter ended Dec. 31, 2013.
The company also is approaching completion of a transaction that will merge the Journal Communications broadcast operations into Scripps and combine its newspapers in a new company with those of Journal. Shareholder votes related to the deal are scheduled for March 11. Upon close, Scripps will become the nation's fifth-largest independent local broadcaster.
In the fourth quarter of 2014, television operating revenues were up almost 28 percent, driven by $32.6 million of political advertising, incremental revenue from the two stations acquired from Granite in the second quarter, and a 38 percent increase in retransmission revenue from our legacy stations.
Operating revenues in the newspaper segment declined 7.9 percent during the 2014 quarter. Subscription revenue remained relatively flat.
Commenting on the fourth quarter, Scripps Chairman, President and CEO Rich Boehne said:
"Political advertising revenue was the catalyst for our strong television division revenue growth in the fourth quarter, contributing nearly $33 million. Although it displaced many of our core TV advertisers, the political ad surge helped drive a 28 percent jump over fourth quarter of 2013. Retransmission revenue was another big contributor to our quarterly performance.
"Also in the fourth quarter, we completed contract negotiations with ABC covering 10 television stations from 2015 through 2019. We have a long-standing and mutually beneficial relationship with ABC, and all sides will benefit from the outcome of this agreement, which includes an enhanced partnership in Watch ABC, the network's over-the-top TV service.
"We are focused on digital video, and in the fourth quarter, we got a big boost when we added the Newsy video players onto our local newspaper and television websites. Across all of our digital businesses, we served up more than 235 million video views, the majority of them through Newsy's reach. Digital video is a fast-growing marketplace that supports premium rates for pre-roll advertising. The large and growing Newsy audiences give us the opportunity to take advantage of those new revenue sources.
"Finally, we are moving rapidly to close our transactions with Journal Communications after receiving clearance from the Securities and Exchange Commission last month. These transactions will create pure-play broadcast and newspaper companies able to fully focus on their industry opportunities. Following the shareholder votes on March 11, we hope to move smoothly to an early second-quarter close.
"Once we complete the deal, Scripps will own 33 television stations and 34 radio stations in 27 markets as well as dozens of digital news and information products both in our local markets and with a national reach."
Consolidated revenues increased 11 percent, or $24.9 million, to $246 million during the quarter.
Costs and expenses for segments, shared services, and corporate were $199 million, an increase of $10.6 million or 5.6 percent, primarily driven by expenses from the two Granite stations and $1.2 million of incremental expenses to expand digital operations by hiring sales people and creating digital-only content.
The company reported income from operations before income taxes of $18.1 million, compared to $7.1 million in the 2013 quarter. Included in the fourth quarter 2014 pre-tax income is $4.6 million of acquisition and integration costs for the Journal Communications transaction. We also recorded a $5.8 million non-cash write-off, primarily for a minority investment in a newspaper content business. The 2013 fourth-quarter pre-tax income included a $3 million non-cash charge for losses on investments and a $4.6 million non-cash charge to write off loan fees related to debt refinancing.
In the fourth quarter of 2014, net income attributable to Scripps was $15.7 million, or 27 cents per share, while in the fourth quarter of 2013 net income attributable to Scripps was $7.9 million, or 14 cents per share. In the 2014 quarter, acquisition-integration costs and investment write-offs reduced earnings per share by approximately 11 cents. The tax expense for the quarter includes $6.4 million, or 11 cents per share, in favorable adjustments to the company's tax reserves. In the 2013 quarter, the write-off of investments and loan fees reduced earnings per share by approximately 8 cents.
Fourth-quarter results by segment are as follows:
Television
Revenue from the television division was $147 million, up $32.1 million or 28 percent.
Advertising revenue by type was:
Local, down 1 percent to $62.3 million
National, down 8.3 percent to $29 million
Political, $32.6 million in 2014 compared to $2.1 million in 2013
Digital, up 24 percent to $5.9 million
Retransmission revenue was up 41 percent to $15.8 million.
Total segment expenses increased 12 percent to $91 million. Driving the increase were higher digital costs, higher employee-related costs, and higher network fees tied to the increase in retransmission revenue.
On a same-station basis, total revenue increased 22 percent, and total costs and expenses increased 4.8 percent.
Segment profit in the television division was $56.3 million in the 2014 quarter compared to $33.8 million in the prior-year quarter.
Newspapers
Revenue from newspapers in the fourth quarter was $95.1 million, a 7.9 percent decline from the prior-year period.
Advertising and marketing services revenue was $60 million, down 9.7 percent.
Advertising and marketing services revenue by type was:
Classified, down 5.9 percent to $14.9 million
Real Estate – up 4.7 percent
Employment –up 2 percent
Automotive – down 8.3 percent
Local, down 8.4 percent to $19.7 million
Preprint and other, down 12.4 percent to $18 million
National, down 49 percent to $1.1 million
Digital, down 1 percent to $6.3 million
Subscription revenue was relatively flat compared to the year-ago quarter.
Expenses for the newspaper group were $89.1 million, down 1.2 percent due to lower employment levels, although severance costs were $1 million higher than fourth-quarter 2013.
Fourth-quarter segment profit in the newspaper division was $6 million compared to $13.1 million in the 2013 quarter.
Shared services and corporate
The shared services and corporate line of the company's financial statements includes investment in digital operations.
Shared services and corporate expenses were $15.1 million, up $0.3 million.
Financial condition
On Dec. 31, cash and cash equivalents totaled $158 million while total debt was $198 million.
The company did not repurchase any shares during the fourth quarter of 2014. The merger agreement with Journal Communications precludes either company from repurchasing shares prior to closing the transactions.
Year-to-date results
Comparisons below are to the full year of 2013.
In 2014, revenue was $869 million compared to $817 million last year. Political advertising was $58 million compared to $4.3 million.
Costs and expenses for segments, shared services and corporate were $769 million, an increase of $27.6 million. The 2014 period includes $9.9 million of incremental expenses to grow digital operations, two full quarters of costs to operate the Granite stations, and higher network fees tied to the increase in retransmission revenue.
The company reported income from operations before income taxes of $12.3 million in 2014 compared to a loss from operations before income taxes of $8.6 million in 2013. The 2014 year-to-date results were impacted by a $4.1 million charge to exit a multi-employer pension plan, $14 million of Journal- and Granite-related acquisition and integration costs, a $5.9 million non-cash charge for losses on investments, and a $3 million gain on the sale of land. In 2013, the company incurred a $4.5 million non-cash charge for losses on investments and a $4.6 million non-cash charge to write off loan fees related to debt refinancing.
In 2014, net income was $10.5 million, or 18 cents per share, compared to a net loss of $0.5 million, or 1 cent per share, in 2013. Acquisition and integration costs, charges related to the withdrawal from a multi-employer pension plan, investment write-offs and a gain on sale of land reduced earnings per share by approximately 22 cents in 2014. The tax expense for 2014 includes $6.4 million, or 11 cents per share, in favorable adjustments to the company's tax reserves. The 2013 write-off of investments and loan fees reduced the prior-year earnings per share by approximately 10 cents. The tax benefit for the 2013 period includes $3.1 million, or 5 cents per share, in favorable adjustments to the company's tax reserves.
Looking ahead
Due to the timing of the proposed closing of the transactions with Journal Communications, the company is not providing guidance for the first quarter. We will provide second-quarter and full-year guidance when we share first-quarter 2015 results in early May.
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